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African Tech Startups Layoffs: The Real Deal

Tech Startups continue to endure layoffs, despite their high values, which does not protect them from the current global economic climate. This is the scenario in Africa from the perspective of investors.

As a result of digitization and frontier technologies, the rate of technological development is quickening. By democratizing access to world-class education and health care, addressing inequities, managing the climate catastrophe, and empowering people to participate in decisions that affect their lives, technology may help. Technology is what we might refer to as the “enabler of better life”.

Africa enjoys a fertile environment for tech entrepreneurs due to the continent’s youthful and growing population, rising internet penetration, and the application of emerging technologies that have the potential to improve access to healthcare, financial services, education, and energy, the Boston Consulting Group (BCG) report indicated. The tech ecosystem in Africa is expanding quickly across all sectors, and the latest State of Tech in Africa Q3 report for 2022 from TechCabal reveals that funding for tech startups has not been rosy since H1 2022.

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The number of significant layoffs by tech businesses this year alone has eclipsed the total during the 2008–2009 Great Recession, which started with the failure of Lehman Brothers. Between January and the beginning of September, according to Crunchbase, nearly 41,000 workers in the US tech sector were laid off. Microsoft, the third-most valuable firm in the world ($1.91 trillion), Netflix ($100.55 billion), Stripe ($94.4 billion), Shopify ($38.02 billion), RobinHood ($8.32 billion), Twitter ($29.56 billion), and Substack are a few of the well-known names on the list. However, 1,495 tech companies have sacked 246,267 employees since the onset of Covid-19, but 2022 has been the worst year for the tech sector and early 2023 can even be grimmer, according to data from layoffs.fyi, a crowdsourced database of tech layoffs.

When it comes to Africa, big players like Marketforce, SWVL 400, 54gene, Wave 300, Chipper Cash and digital bank, Kuda recently let go of some of its employees despite having millions of dollars’ worth of investment at their disposal.

However, Kuda is growing into new markets on the continent, including Ghana, Uganda, and Pakistan. The company, having raised more than $90 million in total from investors such as Valar Ventures and Target Global, is also planning an expansion outside Africa to Pakistan. It recently hired Pavel Khristolubov, an ex-Tinkoff executive, as its global chief operating officer and Elena Lavezzi, a former Revolut executive in Europe, as chief strategy officer to oversee efforts in this regard and also grow its over 4 million customer base. What a dynamics!

Clearly, their positions are due to a combination of investor scepticism, unsustainable pandemic costs, and declining stock prices. Numerous firms are experiencing a severe cash shortage as a result of other factors that have impacted the public markets.

A tech hub somewhere in Africa. Photo: Unknown

Analyst says, Nigeria is the leading African destination for foreign direct investments in technology startup businesses. Between 2015 and 2022, Nigerian technology startups have secured funding totalling just over US$2 billion. This is the highest amount of funding recorded by any country in Africa.

So many entrepreneurs don’t understand how venture capital funds work and are pitching people like me who are currently fully deployed and don’t have any more capital to invest until after the elections next year, ” said Iyinoluwa Aboyeji, CEO and General Partner of Future Africa, an early-stage venture capital firm with a portfolio of 100 companies valued at over $6 billion. He said further, “They don’t understand how venture capital will now work in a downturn like we are seeing. For example a lot of venture capitalists will invest a lot less in a few higher quality deals where they will spend a lot of time and institute a lot of governance.” “These are important things for the entrepreneurs in our ecosystem to understand so they can plan and engage capital accordingly,” Iyinoluwa noted.

Eli David, the CEO of StartupBlink, stated in this year’s “Global Startup Ecosystem Index” that “inflation, tech sector wage increases, company devaluations, and increasing interest rates will all challenge short-term economic growth and make it harder to raise capital.” According to him, “For founders, it could mean a return to beautiful origins; the self-funded bootstrapped path may become a necessity again.”

In the short term, cost-cutting will be essential for African tech-based companies to survive the competitive environments they currently face. Tech professionals in the US are increasingly searching for employment in nonprofits, smaller companies, and the government as they look elsewhere for chances. What is the future of African tech workers in this challenging period and uncertain market environment?

Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business argued that, “The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing. If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior and are not particularly evidence-based.

Moreover, a workforce-data provider, Revelio Labs noted in a report that, 72% have found new jobs within three months. Even more surprising, a little over half of them have landed roles that actually pay more than what they were earning in the jobs they lost.  The key takeaway is ‘do not despair, according to Reyhan Ayas, a senior economist at Revelio Labs. “The job market is still hot. Although some parts of the tech industry are struggling, other companies are actively hiring.” Tech employees’ prospects of finding new jobs are generally favourable in any market because they typically have college degrees and specialized skills that are in great demand across numerous industries.

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